Crowdfunding Fraud: Scammers Use Kickstarter, Indiegogo, And GoFundMe As A Personal Piggy Bank

The concept of Crowdfunding relies entirely upon trust, It is because of this fact that it is a prime breeding ground for fraud. Through online platforms such as Kickstarter, Indiegogo, or GoFundMe, people solicit funds for their projects or lifestyles from complete strangers. Sometimes extra measures, such as a sample product or reward, are offered to generate trust. According to Consumer Reports, these individuals or campaigns are only as reliable as the promises that they make, and unfortunately, their promises sometimes fall short.

One popular crowdfunding site Kickstarter states that they “welcome and support projects in diverse categories.” Potential startup campaigns flaunt their fresh new product idea and everyone chips in to bring the product to fruition. This concept is great on paper, but Kickstarter has become a large target for scammers of all kinds. Many people have lost money investing in failed Kickstarter campaigns.

Beef jerky lovers pledged $120,309 to fund a Kickstarter campaign offering three different flavors of jerky. The campaign seemed to be going successfully until some of the backers began to get suspicious. When a documentary film company tried gaining information about the campaign, they found incomplete information and sketchy details. Officials at Kickstarter stopped the campaign before any payments had been processed, protecting more than 3,000 backers from losing their money.

Kickstarter has numerous systems in place to guard against fraudulent activity. In an effort to fight against con artists, Kickstarter has a ten person Integrity Team who assist in product evaluation. A spokesperson for Kickstarter said that “the site also uses a combination of complex algorithms, automated tools, and reports from the community.” Campaigns that break the rules are subject to account suspension. This is a positive step, but crowdfunding sites are filled with products that will never work, campaigns designed poorly, and blatant cons. That being said, not even the strongest security available can stop every con attempt.

Another crowdfunding site, Indiegogo, is not safe from accusations of suspected fraud. Indiegogo has recently partnered with Arrow Electronics, who will supposedly offer tools for design, prototyping services, and manufacturing support. Traditionally, Indiegogo has had a lesser reputation than that of Kickstarter because of their lax campaign regulations. Hopefully, the expert assistance will help keep scammers away from Indiegogo’s crowdfunding campaigns.

Similar to Kickstarter and Indiegogo, GoFundMe is a crowdfunding platform designed to solicit money for a personal agenda, business model, or charitable cause. Unlike the other sites, GoFundMe has looser guidelines on what type of things can be supported. With GoFundMe, nearly anything and everything goes, including rampant acts of fraud.

[Image by Jakkarin chuenaka/Shutterstock]

In 2015, ABC Newsreported on a campaign titled “Man Allegedly Keeps Crowdsourced Funds Raised in Sick Baby’s Name.” A man named Wills received $6,500 under the assumption that the money would be given to the family of the sick child, however, after pulling the funds from the account Wills told the family that he had decided to give the money to charity. When ABC News contacted the charities that Wills mentioned, none of them had received any donations.

In 2014, a Texas woman was arrested for raising $4,500 for a family that she didn’t even know. GoFundMe did cooperate with the investigation, however, when questioned about the money, they stated, “the full balance of the campaign in question was withdrawn by the account holder before we received any complaints.” The police chief on the case, Henry Fluck, warns that this type of scam is simple to pull off. A scammer can open an account, shut it down, run with the money, and then move on to find themselves another victim.

GoFundMe does not necessarily intend to be used as a scammer’s paradise. In fact, evidence points to the contrary. The site does have some fraud prevention safeguards in place, such as a waiting period before money can be withdrawn. They even warn people to beware, and suggest not donating unless you “fully understand and trust the cause presented.”

Criminal crowdfunding efforts are being reported by banks and financial institutions that believe online platforms, such as Kickstarter, GoFundMe, and Indiegogo, are being utilized for identity theft, credit card fraud, money laundering, phishing schemes, account takeovers and even the possible financing of terrorist organizations. Forms of criminal crowdfunding are everywhere, and it is important to thoroughly research, remain aware, and up to date, of the campaigns that you are funding.

Crowdfunding scam types [Image by Serato/Shutterstock]

According to FinCEN, Financial Crimes Enforcement Network, reports of suspicious activity linked to crowdfunding have steadily increased in number from 2013 to 2016. Examples of suspicious activities include copycat accounts, made to look legitimate, as well as abandoned campaigns where money is collected and the campaign is immediately closed. One report was even filed for suspected “terrorist financing” due to the account holder’s possible terrorist connection. Since crowdfunding sites have become popular, more than 3 million reports have been filed for suspicious activity.

The FinCEN, on April 4, 2016, proposed the implementation of new policies that are designed to prevent these financial crimes from occurring. They proposed that the definition of a “Broker or Dealer in Securities” include crowdfunding portals, which would then impose the same guidelines as fully-registered brokers and dealers. Sites such as Kickstarter, GoFundMe, and Indiegogo may soon be subject to recordkeeping, record retention, and reporting of all suspicious activity.